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Recovery Will Be Painful; “New Normal” Will Be “People Buying What They Can Afford,” According to Economists


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Wednesday, October 28, 2009

Top economists Richard Green, Glenn Crellin and Jack Kyser formed a panel on the housing market recovery, moderated by C.A.R. Vice President and Chief Economist Leslie Appleton-Young at the C.A.R. Expo in October.

The recession appears to be slowing but recovery will be painful, according to a panel of renowned economists who shared their views at the California Association of REALTORS® Expo held in October at the San Jose Convention Center.

The panel, moderated by California Association of REALTORS® vice president and chief economist Leslie Appleton-Young, included Richard Green, director of the Lusk Center for Real Estate at the University of Southern California; Glenn E. Crellin, director of the Washington Center for Real Estate Research at Washington State University; and Jack Kyser, chief economist, Los Angeles County Economic Development Corporation.

The three economists pointed to positive signs: home sales are up and inventory is now down in the distressed markets; the state's median home price continues to rise month over month; and the stock market rebounding. However, there continue to be problems - escalating job losses, no job growth, and depressing sales figures in the retail sector.

So what will recovery mean in 2010?

Jack Kyser expects continued losses till mid-2010. He sees a "horrendous price war in supermarkets," lots of special deals by the end of this year, but the worst for retail sales will come after Christmas. Kyser also believes some hotels may go back to lenders or even shut down.

But Kyser sees some green chutes. He said the winners in the jobs sector are private education and health services. He sees tech jobs trends moving sideways, and the beginnings of an upturn in international trade. Residential real estate will bottom out, but the commercial side will struggle through 2013. He stressed mid-term November elections are going to play a major role in guiding policy.

"The bottom line is: keep the faith; we will recover," Keyser told the audience.

Glenn Crellin anticipates suffering on the price side is going to be prevalent for at least two more years. He also worries sellers with limited or no equity, have little opportunity to re-enter the market.

"We may continue to run on empty, leaving the market with no role for repeat buyers who will run into a wall," he remarked.

For Crellin, recovery looks more like a W, a double bottom with a brief intermediate recovery. While there will be some improvement, to Crellin, "2010 won't be a salvation for real estate."

Richard Green expects foreclosures will continue to be a problem as they are now coming from the prime market. He finds the shadow inventory of REO properties still to come worrisome and said we could see falling rents for the first time in California. Home prices at or below replacement cost, particularly in distressed markets like the Inland Empire, "are just not sustainable," he remarked.

Green is 70 percent optimistic 2010 will be year of recovery. "This is really a good time to buy a home," he announced. "With mortgage rates at their lowest level, if you're going to live in a place at least five years, is it worth buying a home? Absolutely! I see prices more likely to go up rather than down."

Green sees an L-shaped recovery, with employment levels back to where they were in 2000. He is especially optimistic about recovery in Silicon Valley because in addition to its location, weather, and other assets, the region has an exceptional, well-educated labor force, in comparison to other parts of the state.

Whether it be an L, W or U-shaped recovery, the economists agreed recovery will be "slow and painful," and it can't be successful without job creation; available financing, especially for the high-end markets; and more help from the federal government by way of extending and expanding the homebuyer tax credit.

And the new normal? "The new normal will be people buying what they can afford," Appleton-Young summarized the message from all three economists.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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